A group of small investors is trying to amass enough support to oust the board, including the founder and chief executive, Jerry Yang, who it says has lost the "moral authority" to lead the company. Yahoo's biggest shareholders are also putting significant pressure on Mr Yang to change course and come up with a plan to boost the share price beyond the level of Microsoft's final offer of $33, which valued Yahoo at $46bn (£23.3bn).

Many of the investors who remained bullish on Yahoo shares yesterday were pinning their hopes on a deal to outsource its search-based advertising business to the market leader Google, or a massive shares buy-back scheme.

The stock price shed 15 per cent in New York, wiping more than $6bn off the company's value, but at $24.37 it was significantly higher than it was when Microsoft went public with its initial offer on 31 January.

Eric Jackson, a small shareholder whose criticisms of the former Yahoo chief executive Terry Semel at last year's shareholder meeting were the most vocal challenge to the board at that time, is seeking other investors to join a petition to force out the board. He has already formed a pressure group, called Plan B, which represented 140 small investors, and dozens pledged to back his attempted coup.

"We believe the Yahoo board does not have the moral authority to represent our views as shareholders in discussions with Microsoft or any other company who wants to buy Yahoo," Plan B's petition says.

Mr Jackson added: "Boards need to be the eyes and ears acting on behalf of the best interests of the shareholders. Our interests have not been served by this outcome. Hubris and pride got in the way. We need new blood on this board. We need to know that our interests as shareholders are being properly represented."

While the efforts of small shareholders are likely to cause discomfort, Mr Yang's fate hangs more directly on the support of his largest investors, many of whom had demanded Microsoft raise its bid to clinch a deal – and had expected it to do so. They were shocked by this weekend's developments, when Steve Ballmer, the Microsoft chief executive, met Mr Yang and became furious he was still demanding a price of $37 or above, then decided to walk away.

Bill Miller, a portfolio manager at Yahoo's second-largest shareholder Legg Mason, said he would have accepted a deal below the level demanded by Mr Yang – probably at $34 – and called on Yahoo to immediately launch a shares buy-back, using a large proportion of its $2.3bn cash reserves.

"It would be almost incoherent not to do so," he told The New York Times. "You cannot maintain that $33 undervalues your company, have your stock trade below that, and not buy back stock."

Sources at Yahoo are also pointing to the success of an outsourcing trial with Google, where the search giant took over the sale of advertisements that appeared alongside results from Yahoo's search engine. The trial lasted just a week, but could be extended.

If Google takes over all of Yahoo's search-based ad sales, it could add $500m or more to Yahoo's annual cashflows, analysts said yesterday, but a deal would give Google control of 85 per cent of the search ad business and attract scrutiny from competition regulators.

A group of small investors is trying to amass enough support to oust the board, including the founder and chief executive, Jerry Yang, who it says has lost the "moral authority" to lead the company. Yahoo's biggest shareholders are also putting significant pressure on Mr Yang to change course and come up with a plan to boost the share price beyond the level of Microsoft's final offer of $33, which valued Yahoo at $46bn (£23.3bn).

Many of the investors who remained bullish on Yahoo shares yesterday were pinning their hopes on a deal to outsource its search-based advertising business to the market leader Google, or a massive shares buy-back scheme.

The stock price shed 15 per cent in New York, wiping more than $6bn off the company's value, but at $24.37 it was significantly higher than it was when Microsoft went public with its initial offer on 31 January.

Eric Jackson, a small shareholder whose criticisms of the former Yahoo chief executive Terry Semel at last year's shareholder meeting were the most vocal challenge to the board at that time, is seeking other investors to join a petition to force out the board. He has already formed a pressure group, called Plan B, which represented 140 small investors, and dozens pledged to back his attempted coup.

"We believe the Yahoo board does not have the moral authority to represent our views as shareholders in discussions with Microsoft or any other company who wants to buy Yahoo," Plan B's petition says.

Mr Jackson added: "Boards need to be the eyes and ears acting on behalf of the best interests of the shareholders. Our interests have not been served by this outcome. Hubris and pride got in the way. We need new blood on this board. We need to know that our interests as shareholders are being properly represented."

While the efforts of small shareholders are likely to cause discomfort, Mr Yang's fate hangs more directly on the support of his largest investors, many of whom had demanded Microsoft raise its bid to clinch a deal – and had expected it to do so. They were shocked by this weekend's developments, when Steve Ballmer, the Microsoft chief executive, met Mr Yang and became furious he was still demanding a price of $37 or above, then decided to walk away.

Bill Miller, a portfolio manager at Yahoo's second-largest shareholder Legg Mason, said he would have accepted a deal below the level demanded by Mr Yang – probably at $34 – and called on Yahoo to immediately launch a shares buy-back, using a large proportion of its $2.3bn cash reserves.

"It would be almost incoherent not to do so," he told The New York Times. "You cannot maintain that $33 undervalues your company, have your stock trade below that, and not buy back stock."

Sources at Yahoo are also pointing to the success of an outsourcing trial with Google, where the search giant took over the sale of advertisements that appeared alongside results from Yahoo's search engine. The trial lasted just a week, but could be extended.

If Google takes over all of Yahoo's search-based ad sales, it could add $500m or more to Yahoo's annual cashflows, analysts said yesterday, but a deal would give Google control of 85 per cent of the search ad business and attract scrutiny from competition regulators.

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